Arkansas Cases
DUNAWAY v. GARLAND COUNTY FAIR, CA06-724 (12-20-2006) Lloyd
DUNAWAY, Vernon Wright, Sue Wright, and Kenneth Orrell,
Appellants v. Garland County FAIR and Livestock Show
Association, Inc.,Appellee. No. CA06-724. Court of Appeals
of Arkansas Divisions III. December 20, 2006.
An Appeal From Garland County Circuit Court [No.
Cv-2006-263-Iv], Honorable Lynn Williams, Circuit Judge.
Affirmed On Direct Appeal; Affirmed On Cross-Appeal.
SAM BIRD, Judge
This appeal concerns efforts by appellants Lloyd Dunaway,
Vernon Wright, Sue Wright, and Kenneth Orrell to challenge
the validity of actions taken by appellee Garland County
Fair and Livestock Show Association, Inc., in relocating
its fairgrounds. Dunaway and the Wrights are members of the
association and members of its board. Orrell attempted to
become a member of the association but was denied
membership. The trial court dismissed some of appellants’
claims on motion, refused to appoint a receiver, declined
to enjoin the sale of appellee’s fairground property, and
ordered appellee to amend its bylaws. Appellants assert
that the trial court erred in three instances, specifically
the denial of their motion for a continuance, the dismissal
of their claims to invalidate the board’s actions, and the
failure to award attorney’s fees. Appellee cross-appeals
from the trial court’s order directing it to amend its
bylaws and from the denial of its request for attorney’s
fees.
Appellee is a non-profit corporation governed by “Amended
and Substituted Articles of Incorporation” filed with the
Arkansas Secretary of State on August 24, 1989, that
replaced the original articles adopted in 1940. The
articles provide that “[m]embership in this association is
open to any resident of Garland County, . . . approving of
the goals of the corporation and willing to contribute
their time and energy to accomplish the purposes of this
corporation.” The association is governed by a
twenty-eight-member board of directors elected by the
membership by secret ballot.[fn1] The articles do not limit
the number of members. The 1997 amendments specify that
vacancies on the board shall be filled by the president’s
nominating a person at a regularly scheduled meeting and
the board’s approving the nomination at the next regularly
scheduled meeting. The articles also provide that the
corporation shall have all of the general powers listed in
Ark. Code Ann. § 4-28-209.
Dunaway was president of the board when the “Constitution
and Bylaws of the Garland County Fair And Livestock Show
Association” (the “bylaws”) were adopted by the officers of
the association on April 30, 1996. The bylaws establish a
three-tier membership regime. The first tier, labeled
“regular members,” consists of “elected individuals who
wish to contribute their time and energy to help accomplish
thereof” and is limited to twenty-eight persons, consisting
of twenty-seven regular elected members and the current
president of the Garland County Extension Homemakers. The
second membership tier, labeled “honorary members,”
consists of “individuals selected and approved by a
majority of the regular membership.” The third tier of
membership, labeled “advisors,” consists of “individuals
selected and approved by a majority of the regular
membership” and have no voting rights. The bylaws limit
voting rights to the “regular” members.
The bylaws provide a method for filling board vacancies
similar to that contained in the 1997 amendment to the
articles. The bylaws state that the officers of the
association “shall not enter into any contracts or
agreements with an individual or an organization without a
majority vote by the membership at a regular or special
called meeting.” (Emphasis in original.) The bylaws, as do
the articles, provide that directors are to be elected to
serve a three-year term, with one-third of the board
elected each year. Both the articles and the bylaws provide
that, in case of conflict between the articles and the
bylaws, the articles will control.
On October 21, 2005, appellee, after being authorized by
its board, entered into a contract to sell certain real
property to SDI Realty Management, Inc., for the sum of
$9.12 million. Thereafter, appellee, again acting through
its board, entered into a contract to purchase certain
other property for the sum of $1.2 million and to relocate
its fairgrounds to the new location. Both transactions were
scheduled for simultaneous closings on or before April 17,
2006.
On March 17, 2006, appellants filed suit for injunctive,
declaratory, and other relief. The complaint, as amended,
alleged that the membership and voting restrictions of the
bylaws were illegal; that the board was thus illegally
constituted; that the board had acted outside its
authority; that the directors had breached their fiduciary
duties to the association; and that none of the contracts
executed had been properly authorized by the association
and were thus void. Appellants sought an order (1)
declaring that the restrictions on membership and voting
set forth in the bylaws were invalid; (2) declaring that
appellee’s president James Mattingly was not qualified for
membership due to his residency; (3) declaring that the
board was illegally constituted; (4) declaring the
real-estate contracts void ab initio; (5) removing the
board; (6) appointing a receiver to take over the business
affairs of appellee to conduct a membership campaign and to
oversee an election of a new board; and (7) enjoining the
board from taking any further action with respect to the
purchase or sale of any real property until a new board was
elected and had conducted appropriate due diligence.
In response, appellee filed a motion to dismiss, alleging
that the complaint failed to state facts upon which relief
could be granted as to Mattingly’s residence; that
appellant Orrell lacked standing to raise the claims
because he was not a member of the board; that appellants
were not entitled to relief for a variety of factors; and
that any injunctive relief would cause appellee irreparable
harm. Appellee also filed an answer denying the material
allegations of the complaint and asserting that res
judicata barred any claims by appellant Dunaway and that,
if injunctive relief were granted, appellants be required to
post a bond in the amount of $10.3 million, as provided by
Ark. R. Civ. P. 65(d) and 65.1.
At a March 21, 2006, in-chambers conference, the trial
court, based upon the tacit agreement of all counsel,
scheduled an expedited trial date of April 5, 2006. The
trial court also denied appellants’ request for a
preliminary injunction due to appellants’ inability to post
the required bond. After having announced its intention at
the March 21 conference, appellee filed a motion to dismiss
on March 29, 2006. On April 3, 2006, appellants filed their
motion for continuance, asserting the need for additional
time for discovery and that the Arkansas Rules of Civil
Procedure provide certain time frames to allow for responses
to discovery and to motions. On April 4, 2006, the trial
court denied appellants’ motion for continuance, citing its
untimeliness and the previous agreement of counsel to be
ready for trial on April 5, 2006.
At the combined motions hearing and bench trial, appellee
argued that appellants’ complaint failed to state facts
upon which relief could be granted regarding the James
Mattingly’s residence and the membership and composition of
the board. Appellants stated that they could not produce
any evidence to controvert those issues. Appellee also
asserted that all actions were taken with proper board
approval. Appellants, again, stated that they could not
dispute that fact. The trial court asked if there were any
members of the association who were not also members of the
board. Appellee’s counsel stated that there were not, and
appellants did not dispute that assertion.
Appellee’s counsel admitted that there were two vacancies
on the board but stated that they had been hard to fill
since the dispute over relocation arose. Counsel also
asserted that the board had been acting with a proper
quorum of at least fifteen members.
Appellants argued that there was a conflict between state
law, the articles, and the bylaws regarding the classes of
membership in the association. They also argued that the
articles did not limit membership to twenty-seven members,
as they contended the bylaws did.
The trial court ruled from the bench and dismissed all but
two of appellants’ claims, finding that James Mattingly was
a resident of Garland County; that the bylaws did not set
any time limit during which the association must fill
vacancies on the board; that there was no conflict between
the bylaws, the articles, and the law regarding the
nomination and election of directors; and that the board of
directors was properly constituted. The case proceeded to
trial on the issues of whether appellee should revise the
process for membership in the association and whether
appellee had violated any statutory provisions,
specifically Ark. Code Ann. § 4-28-412(2) (Repl.
2001).
At trial, Lloyd Dunaway testified that he had been involved
with the association for thirty years, including serving as
president for twelve or thirteen years. After identifying
the articles, bylaws, and the real-estate contracts at
issue, he said that there was no method for a person to
become a member of the association without also being on
the board. He opined that, based on the articles, the
association could not sell its real estate without a vote
of the membership. According to Dunaway, no appraisals were
conducted prior to execution of the contracts. He said that
the board had not investigated the cost of relocating the
fairgrounds. Dunaway admitted that he was involved in the
relocation process, having chaired the relocation committee.
He said that his committee investigated and discussed three
possible sites but never discussed having an appraisal or a
feasibility study conducted. He said that, although there
were no formal estimates for contracting work or
architectural plans commissioned, such plans and estimates
were available. The architectural plans were made by Jeremy
Stone, a registered engineer and a member of the board.
According to Dunaway, these estimates showed that the cost
of the excavation work would be $257,000 and the total cost
of the new fairgrounds would be $8,381,301. Although
Dunaway voted with the majority to sell the current
fairgrounds in October 2005, he testified that he later
changed his mind. He stated that his objection was not to
the sale of the fairgrounds property but to whether the
proceeds from that sale would be sufficient to build new
fairgrounds.
After trial, the court found that appellee did not violate
any statutory provisions. The court, however, ruled that
appellee must clarify its process for membership in its
association. Judgment was entered accordingly, and this
appeal and cross-appeal timely followed.
Appellants raise three points for reversal, each with
several subpoints. The main points are that the trial court
erred in not granting their motion for a continuance of the
trial date, that the trial court erred in dismissing their
claims, and that the trial court should have awarded
appellants their attorney’s fees. Appellee asserts two
points on cross-appeal: that the trial court erred in
ordering it to amend and clarify its membership process and
that the trial court erred in not awarding its attorney’s
fees.
Appellants first contend that the trial court erred in
denying their motion for a continuance. In order for this
court to reverse the trial court’s denial of a continuance,
appellants must show that the trial court abused its
discretion. Bennett v. Lonoke Bancshares, Inc., 356 Ark.
371, 155 S.W.3d 15 (2004).
In a “Notice of Hearing on Motions and Non-Jury Trial,”
dated March 21, 2006, the parties were notified that
motions would be heard and a non-jury trial would be held
on April 5, 2006. The notice also stated that “[a]ny
Motions for Continuance should be filed within 7 days after
receipt of this Notice.” Appellants filed their motion on
April 3, 2006.The trial court denied the motion, citing the
parties’ agreement as to the trial date and the tardiness
of the motion for the continuance. The trial court also
noted that, at the pre-trial conference, the only discovery
appellants indicated needing were some depositions.
Appellants renewed the motion for continuance immediately
prior to trial, stating that they were not provided with
all of the documents they requested. The trial court again
denied the motion, stating:
I gave the parties information that if there was any
problem with discovery I should be informed immediately
and I’d take care of it. I wasn’t informed of any problems
until late Monday. . . . I’m going to deny the Continuance
Motion and we will go forward with the trial on the
merits.
Appellants argue that the trial court set an unreasonable
trial schedule and that they were entitled to conduct
discovery and to time to respond to appellee’s motion to
dismiss. Lack of diligence is a factor to consider in
denying a continuance. Morris v. Cullipher, 306 Ark.646,
816 S.W.2d 878 (1991). Here, appellants did not comply with
the court’s directive to file their motion for continuance
in a timely fashion. Also, when the continuance is based on
a request for additional discovery, the appellant must not
only show that there has been an abuse of discretion but
also that the additional discovery would have changed the
outcome of the trial. Id. Appellants do not explain how the
result would have been different had the trial court
continued the case; rather, they assert that they should
have been allowed to conduct “appropriate discovery.”
Therefore, appellants have not shown any prejudice, and we
will not reverse without a showing of prejudice.
For their second point, appellants argue that the trial
court erred in dismissing their claims. This case was
decided partially on summary judgment and partially by
bench trial.
In Crooked Creek, Ill., Inc. v. City of Greenwood, 352 Ark.
465, 101 S.W.3d 829 (2003), the supreme court set forth the
standard of review for such cases as follows:
Summary judgment is to be granted by a trial court only
when it is clear that there are no genuine issues of
material fact to be litigated, and the party is entitled
to judgment as a matter of law. Once the moving party has
established a prima facie entitlement to summary judgment,
the opposing party must meet proof with proof and
demonstrate the existence of a material issue of fact. On
appellate review, we determine if summary judgment was
appropriate based on whether the evidentiary items
presented by the moving party in support of the motion
leave a material fact. In bench trials, the standard of
review on appeal is not whether there is any substantial
evidence to support the finding of the court, but whether
the judge’s findings were clearly erroneous or clearly
against the preponderance of the evidence.
352 Ark. at 469-70, 101 S.W.3d at 832 (citations omitted).
Under this point, appellants first argue that the trial
court erred in finding that Mattingly was a resident of
Garland County and was thus ineligible for membership in
the association. Citing Clement v. Daniels, ___ Ark. ___,
___ S.W.3d ___ (May 17, 2006), they note that questions of
intent are particularly inappropriate for summary judgment.
However, in the present case appellee presented documentary
evidence in the form of Mattingly’s affidavit, tax records,
voter-registration card, driver’s license, and utility
bills to show Mattingly’s residence was in Garland County.
Appellants conceded that they could not present any
evidence to controvert that fact. Instead, they assert that,
given more time for discovery, they could cross-examine
Mattingly or produce school records showing that
Mattingly’s children attend school in Hot Spring County. If
a party responding to a summary-judgment motion cannot meet
proof with proof on an essential element of his claim, the
movant is entitled to judgment as a matter of law. See
Caplener v. Bluebonnet Milling Co., 322 Ark. 751, 911
S.W.2d 586 (1995).
In several subpoints, appellants argue that the membership
of the association and of the board are illegally
constituted and that the real-estate transactions are void
because they were not approved by the full association
membership.
Arkansas Code Annotated section 4-28-210(a) (Repl. 2001)
provides that a non-profit corporation may have one or more
classes of members, or may have no members, as provided in
the articles. Here, the bylaws provide for three classes of
members and limit “regular” membership to twenty-seven. The
articles are silent on classes of membership, stating only
that membership is open to all Garland County residents who
support the association’s goals. This creates an apparent
conflict between the articles and the bylaws regarding the
number of members. If there is a conflict between the
charter and the statutes under which the charter issued,
the charter must yield to the laws of the state. Allen v.
Malvern Country Club, 295 Ark. 65, 746 S.W.2d 546 (1988).
Arkansas Code Annotated section 4-28-212(a) (Repl. 2001)
provides, in part, that “each member shall be entitled to
one (1) vote in the election of the board of directors.”
Section 4-28-212(b) allows the articles to specify the
voting rights of members on other issues. This implies that
a class or classes of members may not have voting rights on
certain issues.
Appellants rely on the supreme court’s decision in Giss v.
Apple, 239 Ark. 1124, 396 S.W.2d 813 (1965), in arguing
that the entire membership of the association should be
allowed to vote on the transactions. In Giss, a nonprofit
corporation (a country club) sought to sell substantially
all of its assets and move the country club to a new
location. The articles of incorporation and by-laws were
silent as to the vote requirement for the proposal. A close
vote of the membership was taken at which a majority of the
number of members present at the meeting voted to approve
the sale but not a majority of the number of members having
voting rights. The supreme court, after noting that the
relevant act, the Arkansas Nonprofit Corporation Act of
1963, was silent on the question, cited some general
treatises on the law of corporations and placed emphasis on
analogous actions of the corporation in giving the
directors similar power, such as to mortgage the property of
the association (which, under the articles of
incorporation, required a vote of a majority of members
having voting power). The court held that, in order to sell
substantially all of the corporate property, a majority
vote of the corporation’s members having voting rights was
necessary. The court thus filled the statutory void as to
the sale of all assets as best it could, looking to general
corporate law and the past actions of the corporation. If
therefore, the sale of the fairground property is a sale of
all assets without a dissolution, it appears that the vote
requirement, according to Giss, in the absence of any
controlling provision in the corporate articles or by-laws,
is a majority of the members having voting power. That
being said, it appears that membership in the association
is consonant with membership on the board. Further,
although there were two vacancies on the board, there was no
evidence presented as to the vote approving both
transactions.[fn2] Therefore, we cannot say that the
transactions were not approved by a majority of the
membership having voting rights.
Appellants also assert that the trial court should have
removed all of the board members for breaching their
fiduciary duty to the corporation. This comes under
appellants’ allegation that the board violated Ark. Code
Ann. § 4-28-412(2), which prohibits a charitable
organization from “[engaging] in any financial transaction
that knowingly jeopardizes or interferes with the ability
of the charitable organization to accomplish its charitable
purpose.” Among the ways the board is alleged to have
breached its duty is by failing to have proper studies done
as to the feasibility of relocating and in not obtaining
estimates as to the cost of construction. However, Lloyd
Dunaway testified that his committee considered several
possible sites for relocating the association. He also
identified documents showing that cost estimates were
obtained and plans developed. Despite the informality of
the process, there was no showing that these estimates were
not reasonable or accurate. Therefore, we cannot say that
the trial court was clearly erroneous in finding that the
board did not violate section 4-28-412(2) or in not removing
the board.
Appellants also argue that the trial court erred in not
appointing a receiver to manage the association’s affairs.
Rule 66 of the Arkansas Rules of Civil Procedure provides
that: “[c]ourts of equity may appoint receivers for any
lawful purpose when such appointment shall be deemed
necessary and proper,” and under our standard of review, we
must determine whether the appointment of a receiver was an
abuse of discretion. The appointment of receivers rests
within the discretion of courts of equity, to be exercised
with restraint and caution, and ordinarily in conjunction
with a pending proceeding, and rarely as a means in itself,
but whenever unusual circumstances warrant. Union Planters
Nat’l Bank v. East Cent. Ark. Econ. Dev. Corp., 340 Ark.
706, 13 S.W.3d 578 (2000). The power to appoint a receiver
is, of course, a harsh and dangerous one and should be
exercised with great circumspection. Chapin v. Stuckey, 286
Ark. 359, 692 S.W.2d 609 (1985) (citing Kory v. Less, 180
Ark. 342, 22 S.W.2d 25 (1929)). The cases in which
receivers ordinarily will be appointed are confined to
those in which it can be established to the satisfaction of
a court that the appointment of a receiver is necessary to
save the property from injury or threatened loss or
destruction. Union Planters Nat’l Bank, supra. Here, there
has been no such showing. Instead, there is evidence that
the board, through Dunaway’s committee, considered the
matter before acting.
As their last argument under this point, appellants also
argue that the trial court should have enjoined the
real-estate transactions until a new board could be
elected. The granting or denying of an injunction is a
matter falling within the sound discretion of the trial
court and its decision will not be reversed on appeal
unless it is clearly erroneous. Southeast Ark. Landfill,
Inc. v. State, 313 Ark. 669, 858 S.W.2d 665 (1993). Because
we affirm the trial court on the previous subpoints, there
is no basis for the issuance of an injunction.
We discuss appellants’ third point and appellee’s second
point on cross-appeal together. In those points, appellants
and appellee each argue that the trial court erred in not
awarding them their attorney’s fees. However, it does not
appear that either party presented their request to the
trial court or obtained a ruling. An issue cannot be raised
for the first time on appeal. Cole v. Laws, 349 Ark. 177,
76 S.W.3d 878 (2002). We therefore refuse to address these
arguments.
On cross-appeal, appellee argues that the trial court erred
in ordering it to revise its bylaws to set forth the
process for membership. For the reasons stated above in
appellants’ second point, there is a conflict between the
articles and the bylaws regarding classes of membership.
Further, appellee cites no authority in support of its
argument. Therefore, it is appropriate for the court to
require revision to address that conflict, especially where
appellants sought declaratory relief.
Affirmed on direct appeal; affirmed on cross-appeal.
HART AND GRIFFEN, JJ., agree.
[fn1] One member is not elected by the membership: the
current president of the Garland County Extension
Homemakers.
[fn2] In their complaint, appellants allege that the vote
to approve the purchase and relocation of the fairgrounds
passed by a vote of thirteen to twelve. However, there was
no evidence, documentary or testimonial, to support this
assertion.